Dialing back the risk in retirement

(Money Magazine) -- A basic tenet of retirement investing states that as you get closer to calling it a career, you should grow more conservative -- tilting away from volatile assets like stocks and toward more stable investments like bonds and cash.

After all, as retirement nears, you'll have less time to recover if the market turns against you.

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Walter Updegrave is a senior editor with Money Magazine and is the author of "How to Retire Rich in a Totally Changed World: Why You're Not in Kansas Anymore" (Three Rivers Press 2005).

Ultimate Guide to Retirement

• Getting started
• 401(k)s & company plans
• Investing
• Annuities
• IRAs
• Self-employment plans
• Pensions and benefit plans
• Social Security
• Insurance
• Estate planning
• Living in retirement
• Getting help

But a study by consultants Hewitt Associates and Financial Engines found that many older 401(k) participants who invest on their own fail to take this precaution.

The portfolios of participants flying solo tend to remain at worrisomely risky levels, even late in their careers. In fact, the study revealed that older DIYers were taking almost as much risk, on average, as someone investing 100% of their nest egg in equities.

On the other hand, the portfolios of those who receive help via online recommendations, target-date funds, or managed accounts reflected more of a "glide path," with the level of risk starting out high early but declining at older ages.

Now, this doesn't mean that if you're heading into that five- to 10-year home stretch, you should necessarily seek advice. If you're confident about your ability to create a suitable portfolio -- and you're willing to put in the time -- there are plenty of resources and tools that can help you.

For example, to get a handle on investment risk, go to riskgrades.com. Plug in your portfolio, and you'll come away with a numerical score that tells you where your investments rank on a scale from conservative to speculative.

By revving up Morningstar's Asset Allocator tool (free in the Tools & Calculators section at troweprice.com), you can see the odds of different asset-allocation strategies generating various levels of retirement income. Your 401(k) may also offer similar tools.

But if you're unsure about your investing abilities -- or are afraid you just won't follow through -- it makes sense to get help. For instance, you might have a customized portfolio managed for you through programs offered by many 401(k)s.

You might also decide to forge a long-term relationship with a financial planner, who will help you choose investments on an ongoing basis.

Or you could simply pay a planner a one-time fee to set up your portfolio. Then, whenever you need more assistance, just pay for additional advice on an hourly basis.

What's most important as you near retirement, when setbacks can derail your plans, is that you're fully aware of the risk in your portfolio -- and are convinced that you're on the right path.

Otherwise, the phrase "retirement adventure" may take on a new, and darker, meaning.